UK games developers are to be granted large tax breaks for creating titles that pass a British "culture test".

To become eligible for money back, games will be appraised on several criteria, such as having British characters, a British story and being set in Britain.

Titles will also be rewarded for promoting UK culture and employing British production staff, and can claim back up to 20% of the total costs of production.

The Independent Game Developers' Association (Tiga), which represents the UK video games industry, has campaigned for seven years for the tax breaks.

It says they are worth £188m in extra investment for UK games businesses over the next five years.

The move was first announced in the previous Labour government's final budget in March 2010, but was being blocked by the European Union commission, which spent time deciding whether or not the British industry needed the boost.

Dr Richard Wilson, Tiga's chief executive, said: "This is a superb decision by the EU Commission and magnificent news for the UK video games industry.

"It is also a striking success for Tiga, for its members, and for the wider video games industry that Tiga represents. The tax break will create jobs, boost investment and enable the production of more British video games.

"Tiga built a compelling case which demonstrated that video games are cultural products similar to other audio-visual creations and so merit support and that the UK video game industry is competing on an unlevel playing field because our key global competitors already benefit from tax relief or other forms of government support."

The move could have a major impact on the sorts of games that developers make as companies shift products to take advantage of the tax incentives.

Jason Kingsley OBE is the chief executive of games maker Rebellion, based in Oxford, and said: "We won't be compromising the game just to get tax breaks, but, if it were a choice between creating an American lead character or a Brit, it might swing our decision."

There are other ways to take advantage. For example, Rebellion is currently developing Sniper Elite 3 - a war game set in North Africa during the Second World War.

It will not get any "culture points" for its setting or characters, but it could be considered to be culturally relevant as it is about the war, so Jason and his team are hopeful they will get some money back.

"It doesn't have to be people walking around with bowler hats and driving red buses in London to qualify," he said.

"It’s all on a points system - which opens up a lot more possibilities."

It is also hoped that the tax breaks will bring in foreign games makers, who can also get money back through hiring British developers on productions in a similar way to the British film industry. It is estimated that a quarter of British games will be eligible.